ASIC says Westpac will provide 13,000 owner-occupiers who have interest-only home loans with an interest refund, an interest rate discount, or both. The refunds amount to $11 million for 9,400 of those customers.
The remediation follows an error in Westpac’s systems which meant that these interest-only home loans were not automatically switched to principal and interest repayments at the end of the contracted interest-only period.
As a result, affected customers did not start paying any principal on their loans at the time agreed with the bank, and now have less time to repay the principal amount of their loans. These customers would also have paid more in interest.
To remediate the affected customers, Westpac will now:
- Refund the additional interest paid from when the loan was contracted to convert to principal and interest repayments
- Discount the interest rate for the remaining term of the loan.
This remediation has been designed so that customers pay no more interest over the life of the loan than they would have if the system error had not occurred.
ASIC will monitor Westpac’s consumer remediation program to ensure it is meeting consumer requirements.
ASIC Acting Chair Peter Kell said banks must ensure proper systems processes and oversight, particularly when it affected important assets such as consumers’ homes:
‘Greater regulatory scrutiny of interest-only loans has led to improvements in how lenders are providing these loans, including in lenders identifying system errors.’
‘All banks should be reviewing their systems to ensure that they minimise the chance of any such errors occurring, and that any risks to customers are identified early. If past errors are identified, remediation needs to be timely, transparent and effective.’
Westpac is contacting all affected customers, however customers with questions about their loan or the remediation can contact Westpac on 1300 132 925.
ASIC and Westpac are continuing to discuss an appropriate remediation program for investor customers with interest-only loans affected by the same system error.
This has been a long-standing error and has affected some interest-only home loans for owner occupiers who had an interest-only loan with Westpac between 1993 and August 2016.
More information about interest-only home loans
Interest-only home loans have an initial agreed interest-only period, commonly up to five years. During the interest-only period consumers only pay the interest on the amount borrowed. At the end of the interest-only period the loan reverts to a principal and interest loan, to repay the loan over the remaining term. Repayments increase at the end of the interest-only period.
ASIC’s MoneySmart website has information for consumers about
ASIC is undertaking a targeted review of interest-only home loans and provided an update on this review in 17-341MR ASIC update on interest-only home loans.
ASIC is reviewing whether other major lenders have experienced a similar issue.
In 2015, ASIC reviewed interest-only loans provided by 11 lenders and issued REP 445 Review of interest-only home loans (refer: REP 445), which made a number of recommendations for lenders to comply with their responsible lending obligations (refer: 15-297MR).
In 2016, ASIC reviewed the practices of 11 large mortgage brokers and released REP 493 Review of interest-only home loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives (refer: REP 493). REP 493 identified good practices as well as opportunities to improve brokers’ practices.